Envirotech Syst NSE SME IPO review (May apply)

•    The company is in the business of acoustic products that are used for noise measurement and control.
•    It marked growth in its top lines for the last three fiscals.
•    The bumper profit reported for FY24 raises eyebrows and concern over its sustainability.
•    Based on FY24 super earnings, the issue relatively appears lucratively priced. But is operating in a competitive and fragmented segment.
•    However, well-informed investors may park moderate funds for medium term. 

ABOUT COMPANY:
Envirotech Systems Ltd. (ESL) is a leading acoustic products manufacturing organization specializing in noise measurement and control for industrial and commercial applications. Incorporated in 2007, it has expanded capabilities to include innovative acoustical product design and manufacturing. With over 98 employees and a network of technical experts, the company offers cost-effective solutions for various acoustical challenges in industrial, commercial, architectural, and environmental markets.

Its comprehensive services encompass research, cost-benefit analysis, and engineering solutions to provide with the most efficient noise abatement solutions. ESL offers its services across India, catering to a diverse range of industrial and commercial clients. While it also exports some products (Approx. Rs. 2 cr. for FY24), the revenue generated from these exports is not a significant portion of its overall revenue.

ESL specializes in manufacturing products tailored to meet customer demands, offering customized solutions for various noise control requirements. Its products are designed and fabricated according to the specific needs of clients, ensuring optimal performance and efficiency. While the company provides services on PAN India basis, its focus remains on delivering bespoke solutions that align with individual customer requirements. This customer-centric approach has enabled it to establish long-term relationships with clients, who trust it to deliver high-quality, customized products that meet their unique needs. As of the date of this offer document, it had 98 employees on its payroll. 

According to the management, they are expanding their capacities to more than three and half times to meet the rising demands and has long term relationship with Government sector PSUs like HAL, BHEL, DRDO, and private sector bigwigs like L & T, Tata group, Mahindra group, etc.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 5400000 equity shares of Rs. 10 each to mobilize Rs. 30.24 cr. at the upper cap. The company has announced a price band of Rs. 53 - Rs. 56 per share. The issue opens for subscription on September 13, 2024, and will close on September 18, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28.74% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 12.00 cr. for purchase land and building for setting up factory, Rs. 8.00 cr. for working capital, and the rest for general corporate purposes.  

The issue is solely lead managed by Share India Capital Services Pvt. Ltd., and Bigshare Services Pvt. Ltd. Is the registrar to the issue. Share India group's Share India Securities Ltd. is the market maker for the company. 

Surprisingly, company's capital structure info is left blank on page no. 64 of the offer document.

Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 40 per share in March 2024. It has also issued bonus shares in the ratio of 25 for 1 in January 2024. The average cost of acquisition of shares by the promoters is Rs. 0.385 and Rs. 0.388 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 13.39 cr. will stand enhanced to Rs. 18.79 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 105.22 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 18.54 cr. / Rs. 1.06 cr. (FY22), Rs. 28.75 cr. / Rs. 2.57 cr. (FY23), and Rs. 46.88 cr. / Rs. 11.43 cr. The sudden boost in its bottom line for FY24 raises eyebrows and concern over its sustainability. 

For the last three fiscals, the company has reported an average EPS of Rs. 5.06, and an average RoNW of 46.47%. The issue is priced at a P/BV of xx based on its NAV of Rs. 14.64 as of March 31, 2024, but the offer document/IPO price band ad is missing its post-IPO NAV data info.

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 9.21. The issue relatively appears lucratively priced. Based on FY23 earnings, the P/E stands at 40.88. 

For the reported periods, the company has posted PAT margins of 5.84% (FY22), 9.09% (FY23), 24.72% (FY24), and RoCE margins of 27.39%, 29.77%, 62.43% respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for the last five years. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 13th mandate from Share India Capital in the last two fiscals, including the ongoing one. Out of the last 10 listings, 1 opened at par, and the rest opened at a premiums ranging from 5.33% to 120% on the date of listing. There appears to be some garble in merchant banker's track record date on page no. 253 and 254 of the offer document.